Glitch Discovered In Income-tax Forms

January 31, 1992|By LARRY WILLIAMS; Capitol Bureau Chief

A test of new computer software by a Stamford accountant early this week led to the discovery of a mistake in Connecticut's income-tax forms that would have given excessive tax credits to some people who work out of state .

The error, which the Department of Revenue Services is clarifying in notices to accountants, is the latest in a succession of problems that have beset the agency since the income tax was enacted last August.

It also raises a question about the service of Andersen Consulting, which was paid $350,000 to help the state implement the tax.

Among other things, the firm's contract calls for it to "assist in forms development," said A.J. Janschewitz, a tax department spokesman.

Gregg Karlberg, a partner in Andersen who works with the tax department, said he was advised by Commissioner Allan A. Crystal to refer questions to him, but Crystal could not be reached for comment.

The mistake was uncovered by Michael S. Kanter, an accountant who was trying out new Connecticut income-tax software made by the Bureau of National Affairs Inc. in Washington.

When that software produced a different answer on a test run than software by another company, Kanter questioned the Bureau of National Affairs, and the bureau contacted the state tax department.

It turned out that the bureau's software made the right calculation because its design was based upon the income-tax law rather than on the CT-1040 instructions. Software based on the instructions produced the wrong answer.

Janschewitz said a notice, numbered 92 (2), was sent Thursday to accountants and software companies. People who prepare their own taxes and might be affected can obtain a copy of the notice by calling the department, he said.

The mistake will not affect the vast majority of the 1.6 million people who will file Connecticut returns.

Only people who pay state and local income taxes in other states -- such as Connecticut residents who work in New York City -- are affected.

Connecticut, like other states with income taxes, gives a tax credit to state residents whose earnings are taxed in other states.

That means, for example, that a Stamford resident who works in New York can subtract his New York tax payment from his Connecticut tax liability.

The credit is limited, however, to what that person would owe in Connecticut tax if the money were earned in this state.

If the New York tax is $1,000, but the same income in Connecticut would be taxed at $500, then the maximum credit is $500.

The problem in the CT-1040 form is that it effectively doubles the limit on tax credits for people who pay two income taxes in other states.

Kanter used the following example:

A person who earns $70,000 in New York City should be limited to a tax credit of $1,050 -- the tax he would pay in Connecticut on that income.

Let's say his New York state tax is $3,000 and his New York City tax is $315. He would get a $1,050 credit for the state tax and a $315 credit for the city tax, for a total credit of $1,365 -- $315 more than he's entitled to.

The problems that have nagged the Department of Revenue Services since August began with its issuance of withholding tables that resulted in many wage earners' having too much taken out of their checks.

More recently, an order of 175,000 forms for nonresident taxpayers had to be rebound because they contained the wrong-size return envelopes